Mainstream cord-cutting of subscription TV for OTT a long way off

The replacement of mainstream TV by over-the-top (OTT) alternatives is going to happen, but at a rather glacial pace over the next five years at least according to SNL Kagan.

The analyst fundamentally believes that OTT video services such as Hulu, Netflix and increasingly those from the likes of Amazon will erode traditional multi-channel providers’ subscriber bases, especially those currently signed up for cable TV.

In its analysis, SNL Kagan estimates nearly 4% (2.5 million) of occupied US households will employ an online video alternative in lieu of multi channel video package by the end of 2011, representing a small but respectable audience of 4.5 million.

The other thing that the analyst notes is that the growth of OTT will occur as the traditional marketplaces plateau, or actually decline as is the case of cable TV. It adds that even though modest gains in Q4 2010 masked slips in the preceding two quarters, the modest subscriber gain was neither convincing enough to dispatch the threat of cord-cutting nor dismiss the impact of over-the-top substitution.

Specifically SNL Kagan calculates that at the end of 2010, 84.9% of occupied US households subscribed to a multi-channel package after eliminating the overlap of customers with multiple subscriptions, 1.1% less than was the case in 2009.

By way of contrast, SNL Kagan anticipates that OTT substitution will be the primary agent in the expected declines in traditional cable, DBS and telco video penetration, growing to 12.1 million homes by 2015, almost 10%.

The OTT substitution estimates account for nearly 10% of the occupied homes in the U.S. in the five-year forecast.